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Feb. 9, 2021

M&A Lawyer And Deal Closer Addison Adams On Everything You Need To Know About A Liquidity Event (#41)

M&A Lawyer And Deal Closer Addison Adams On Everything You Need To Know About A Liquidity Event (#41)

"I'm a lawyer that loves to close deals." - Addison Adams
Addison Adams is a lawyer that closes deals and founder of Adams Corporate Law. Addison is dedicated to providing practical and useful corporate legal advice to small businesses with enterprise va...


"I'm a lawyer that loves to close deals." - Addison Adams

Addison Adams is a lawyer that closes deals and founder of Adams Corporate Law. Addison is dedicated to providing practical and useful corporate legal advice to small businesses with enterprise values under $100M.

Addison is a legal expert in mergers and acquisitions and helps businesses buy competitors to grow by acquisition and then sell the combined enterprise. Transactions include mergers and acquisitions, spinoffs, share exchanges, and asset sales. Addison also helps companies establish appropriate corporate structures to improve asset protection and tax efficiency and prepare in advance for an ultimate sale.

When it comes to finance, Addison is a legal expert on investor offerings and helps in preparing investor paperwork, structure offerings, and assure legal compliance with securities regulators (the SEC and local state agencies). Whether you are getting capital from a friend or partner, a venture capital fund, or the general public, I will help you follow the rules.

Addison has extensive experience in helping clients resolve disagreements among owners, including partner buyouts, equity adjustments, compensation adjustments, and C-suite turnover. Addison prepares equity incentive plans to award equity to high-performing employees and handle all aspects of corporate compliance and governance obligations.

On the contracts side, Addison is an expert in preparing material contracts. A well-drafted contract will clearly spell out the business arrangement, provide protections for both sides, and clearly define remedies in the event of a breach. Every material contract should be reviewed from the perspective of a potential buyer of the business.

With over two decades of experience, and a background representing public and privately held companies from every industry, Addison provides a wealth of knowledge, experience, and wisdom for his clients. Whether your business is a low-tech manufacturer or distributor, a sophisticated purveyor of professional services, a high tech creator of software or technology, or trailblazing through legal cannabis, blockchain, or fintech, Addison is here to help you navigate the legal issues, protect you, and your business, and help you succeed to achieve your goals for growth and ultimately achieve a successful exit.

Addison was born and raised in Los Angeles and currently lives in Orange County. Married for nearly 20 years, Addison has two teenage boys.  When Addison isn't closing M&A deals, he enjoys running, biking, games, and music.

The Sell My Business Podcast is brought to you by Deep Wealth.

The Deep Wealth Experience has you learn the 9-steps of preparation in 90-days. At the end of the 90-days, you have a blueprint for optimizing the value of your business. You also enjoy the certainty that you capture the maximum value.

 

SHOW NOTES

  • Addison's story of how he became an M&A lawyer
  • Why lawyers are known as deal-killers and what to look out for
  • How Addison focuses on closing deals
  • What to look for in an M&A lawyer that closes deals
  • How Addison aligns the needs of the buyer and seller to provide confidence and hope
  • The dangers of using a non-specialist lawyer for your liquidity event
  • What a non-specialist lawyer typically misses in a letter of intent
  • The diligence Addison performs when taking on a client for a liquidity event
  • Granular legal items that are easy to miss but can cost you big when having a liquidity event
  • Why Addison prefers an M&A lawyer with the buyer, even if it means not taking advantage of an inexperienced lawyer
  • The different types of business owners and what this means for a liquidity event
  • Why an ounce of prevention is worth a pound of cure on the legal side of an M&A deal
  • The importance of identifying weak spots before starting a liquidity event
  • How the right M&A lawyer creates credibility for you as the business owner in a liquidity event
  • Addison discusses the kinds of mistakes non-specialist lawyers make during a liquidity event
  • The dangers of focusing on closing at all costs
  • Why you should be wary of commission-based liquidity event advisors
  • Why you want to help the buyer and what you can do to keep things moving forward
  • The importance of flagging potential problem areas in advance for your buyer
  • Addison weighs in on hiring a generalist or specialist for an M&A lawyer
  • The benefits of an M&A lawyer who is familiar with finance and corporate structures
  • Addison discusses the pros and cons of a boutique M&A law firm and a large law firm with an M&A practice
  • The differences in rates between a large law firm and a boutique M&A law firm
  • How as a boutique M&A law firm, Addison brings in legal specialists for your protection and the best deal
  • Addison shares his experience of building a large law practice
  • The dangers of the "bait and switch" game that many advisors play, especially at the large law firms
  • Addison discusses the importance of preparation before starting a liquidity event

 

This podcast is brought to you by Deep Wealth. Are you thinking about a liquidity event? You have one chance to get it right, and you better make it count. The 90-day Deep Wealth Experience gives you the certainty to capture your maximum value. You'll master the 9-steps of preparation we created for our 9-figure exit. 

Click here to book your free call. Learn about the 9-Step Roadmap and how you can capture the maximum value on your liquidity event.

Enjoy the interview!

 

SELECTED LINKS FOR THIS EPISODE

Adams Corporate Law website

Addison Adams on LinkedIn

The Deep Wealth Experience

Book Your FREE Deep Wealth Exit Call

This episode is brought to you by the Deep Wealth Experience. In the world of mergers and acquisitions, 90% of deals fail. Of the successful deals, business owners leave millions of dollars on the deal table.

Who are we, and how do we know? We're the 9-figure exit guys. We said "no" to a 7-figure offer based on 3-times EBITDA. Two years later, we said "yes" to a 9-figure offer based on 13-times EBITDA. In the process, we increased the value of our company by 10X.

During our liquidity event journey, we created a 9-step preparation process. It's the quality and depth of your preparation that increases your business value.

After our 9-figure exit, we committed ourselves to level the playing field. The Deep Wealth Experience helps you create a launch plan in 90-days. Our solution is resilient, relentless, and gets results. Enjoy the certainty that you'll capture the maximum value on your liquidity event.

Click here to book your free call. Learn about the 9-Step Roadmap and how you can capture the maximum value on your liquidity event.

 

Deep Wealth LINKS FOR THIS EPISODE

The Deep Wealth Experience

FREE Deep Wealth eBook on Why You Suck At Selling Your Business And What You Can Do About It (Today)

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This podcast is brought to you by Deep Wealth. 

Your liquidity event is the most important financial transaction of your life. You have one chance to get it right, and you better make it count. 

But unfortunately, up to 90% of liquidity events fail. Think about all that time, money and effort wasted. Of the "successful" liquidity events, most business owners leave 50% to over 100% of their deal value in the buyer's pocket and don't even know it.

Our founders said "no" to a 7-figure offer and "yes" to a 9-figure offer less than two years later. 

Don't become a statistic and make the fatal mistake of believing that the skills that built your business are the same ones for your liquidity event. 

After all, how can you master something you've never done before? 

Are you leaving millions on the table? 

Learn how the 90-day Deep Wealth Experience and our 9-step roadmap helps you capture the maximum value for your liquidity event.  

Click here to book your free exploratory strategy session.

Enjoy the interview!

Transcript

Steve Wells: [00:00:0] I'm Steve Wells.

Jeffrey Feldberg: [00:00:06] And I'm Jeffrey Feldberg. Welcome to the Sell My Business Podcast.

Steve Wells: [00:00:10] This podcast is brought to you by the Deep Wealth Experience. When it comes to your liquidity event or exit, do you know how to maximize the value of your business? You have one chance to get it right, and you better make it count.  Most business owners believe that business value is determined during the liquidity event.

Unfortunately, most business owners are wrong. Your enterprise value is a direct result of the depth and quality of your preparation. Who are we and, how do we know? We're the 9-figure exit guys. We said "no" to a 7-figure offer based on 3-times, EBITDA. Two years later, we said "yes" to a 9-figure offer based on 13-times E ITDA. Despite having the same people, the same company, the same services, we increased our business value 10 times.

How did we do this? We spent millions of dollars and years of time to uncover strategies that level the playing field. The end result is the 12-week Deep Wealth Experience.

We've created a proprietary solution that is relentless, resilient and gets results. Learn how to master the art and science of a liquidity event. We've leveraged the same strategies that took us from 7-figures to 9-figures.

The Deep Wealth Experience levels of playing field so you can dominate and win.

Book your free call today to find out if you have what it takes for the Deep Wealth Experience.

Visit www.deepwealth.com/success to book your free call.

Jeffrey Feldberg: [00:01:39] Welcome to episode 41 of the Sell My Business Podcast. Addison Adams is a lawyer that both closes deals and is the founder of Adams Corporate Law. Addison is dedicated to providing practical and useful corporate legal advice to small businesses with enterprise values under $100M.

Addison is a legal expert in mergers and acquisitions and helps businesses buy competitors to grow by acquisition and then sell the combined enterprise. Transactions include mergers and acquisitions, spin-offs, share exchanges, and assets sales. Addison also helps companies establish appropriate corporate structures to improve asset protection and tax efficiency and prepare in advance for an ultimate sale.

When it comes to the area of finance, Addison is a legal expert on investor offerings and helps in preparing investor paperwork, structure offerings, and assures legal compliance with security regulators. Whether you're getting capital from a friend, partner, venture capital fund, or the general public, Addison helps you follow the rules.

Addison has extensive experience in helping clients resolve disagreements among owners, including partner buyouts, equity adjustments, compensation adjustments, and C suite turnovers Addison prepares equity incentive plans to award equity, to high performing employees and handles all aspects of corporate compliance and governance obligations.

On the contract side, Addison is an expert in preparing material contracts. A well-drafted contract will clearly spell out the business arrangement, provide protection for both sides, and clearly define remedies in the event of a breach.

Every material contract should be reviewed from the perspective of a potential buyer of the business. With over two decades of experience and a background representing public and privately held companies from every industry, Addison provides a wealth of knowledge, experience, and wisdom for his clients. Whether your business is a low tech manufacturer or distributor, a sophisticated purveyor of professional services, a high-tech creator of software or technology, or trailblazing through legal cannabis, blockchain, or FinTech, Addison is here to help you navigate the legal issues, protect you, and your business, and help you succeed to achieve your goals for growth and ultimately achieve a successful exit.

Addison was born and raised in Los Angeles and currently lives in Orange County. Married for nearly 20 years, Addison has two teenage boys. When Addison isn't closing M&A deals, he enjoys running, biking games, and music.

Addison, welcome to the podcast.

Absolutely delighted to have you with us today. You know, as an M&A lawyer, you bring a wealth of experience and insights to our listeners. And we're going to talk about that, but before we do, why don't you share with our community, what's the story behind the story? How did you get there?

Addison Adams: [00:04:53] Well, Jeffrey, thank you very much for having me on your podcast. It's a privilege and an honor, I'm so happy to have this chance to talk with you and talk to your listeners about selling their business and legal issues to think about.  I'm a lawyer that loves to close deals. I found this out about myself 20 years ago. When I graduated from law school, my first job was not in mergers and acquisitions. It was at a litigation firm handling class action and complex lit, and that was a challenging, exciting job working on multimillion-dollar matters. And with a lot on the line, it also had some negatives though, because typically in a litigation scenario, one side's been hurt.

And so, it's about having a winner and a loser. And when I switched to another firm that was focused on the internet.com financing space, I remember that one of the first deals I worked on was for an insurance startup company that got funded $14 million and the husband-and-wife founders were in our law firm and they literally jumped in the air and were giving all of us lawyers high fives.

And that's when I fell in love. I said this is the best thing I've ever seen because we haven't Vester on one side and excited giving high fives to his team. We have the founders on the other side, excited giving each other high fives. And I said, this is a win-win, everybody's excited here and they're optimistic about the future.

And so, I said, this is where I want to focus. This is what I want to do. I just love it. And ever since then I've never looked back.  I just love the excitement, the energy working with different business owners and, looking for mutual success. Win-win.

Jeffrey Feldberg: [00:06:48] I love that story. And for our listeners who don't have the benefit of seeing Addison, like I am, we're doing both video and audio. You only have the audio when he started talking about M&A, he just started to smile ear to ear. And for our listeners, were you listening closely?

Because the very first sentence out of Addison's mouth was, I am a lawyer that closes deals. And that's exactly what you want to hear from not just an M&A lawyer, but from all of your advisors and Addison, I don't put you in this camp. If I had to pick from all the advisors though, that don't have the best rap, oftentimes it's the lawyers because I hear too many times to count for that my lawyer was so overly cautious that the deal was killed. And so why don't we talk about how you're different than other lawyers and specifically M&A lawyers? Because I would imagine Addison that there needs to be a balance of finding solutions to problems to make the deal happen versus just being so over-protective.

Addison Adams: [00:07:49] Sure, sure. Attorneys are famously deal killers and there's a natural inherent tension there because we're trained to kill deals. We're hired to kill the deal. It's our job to find everything that can go wrong. That is what we're here for. We're looking to protect our client at all costs likely or unlikely, even if it's a remote chance, less than 1%.

Oh my gosh. This might go wrong. I want to make sure you know about it. We're going to do a disclaimer, a CYA letter. We're going to flag this issue. We've tried to negotiate it down with a goal of zero risk for our clients. A hundred percent risk pushed to the other side. And of course, that is where most lawyers at least start their journey because they want to do a really good job.

But of course, with experience comes wisdom and a lawyer needs to have business practical judgment and remind themselves, why are we here in the first place? We're here because both sides want to do the deal. Although my job, as I see it is to flag all those issues. It's also to remind my client why we're here.

If it's the seller, it's because you want to sell the time is right. Whatever reason you have to sell you want to sell. We're negotiating this deal because you like the price.  You found a price that you like. Now we're just looking at how do we connect you from here to there?

How do we get there? And so, at all times my goal is to focus on closing the deal, assuming the deal is a deal that can close a deal, that my client is continuing to want to close. It's very easy, especially it's an emotional ride for a business owner to either buy a business or sell their business.

They have second doubts. They want to make sure that they're not doing something stupid that they're not taking it on, justified risk. And so, I view my job as pointing out the issues, but also giving them feedback on whether I think this is worth killing the deal over, worth negotiating, or just worth accepting.

So, we can move on to the next point. Selling a business is a very granular process. The buyer wants to know what they're buying. The seller wants to know once they sell and close that they get to keep the money. They're not going to have to give some of the back after the closing to pay for liabilities or breach of a rep and warranty, things like that.

 Sometimes deals do fall apart. But my goal is always to work on the solution. Work on. If we see a problem, I immediately ask myself how many different ways can this be fixed? How can we get around it? If we can't fix it or get around it, how can we come up with a fair and reasonable sharing of the risk between the buyer and the seller? If it's a contingent liability, for example, that we don't know if it's coming through and through that process, I am sometimes kind of a. Therapist or a psychologist at times, trying to talk through the concern and keep the team of owners and managers focused on making smart, good business decisions, assessing the risk accurately and moving forward in a productive way

Jeffrey Feldberg: [00:11:12] I like the choice of words that you used when you brought up wisdom. In our 90-day Deep Wealth Experience, step number four is all about the advisory team for your liquidity event. Because as I like to say, when the team works, the dream works, but all too often, I'll speak to a business owner who says, you know what, Jeffrey I've been in business for three decades.

And it just so happens that a friend of the family or my brother-in-law or my sister-in-law has been the lawyer for my business all these years. I know her, she knows me. She knows the business. I'm just going to have this general business lawyer represent me in my liquidity event.

I'm going to save some time. I'm going to save some money and it's just the best thing around. So, Addison, what would you tell them of why they need a specialist. An M&A specialist when it comes to liquidity events, someone like yourself.

Addison Adams: [00:12:08] It's a great question.

And I see it more often than I should. And many times, I'm brought in once they realize that they've made exactly that mistake of trying to use a non-specialist lawyer to advise them on what really is a very specialized area of the law.  The problem that you run into using a non-expert lawyer to sell your business is that number one, you're not going to negotiate the right deal.

The terms, the term sheet, the letter of intent, that's a critical negotiating time where a lawyer can come in and remind you, or let you know, you need to be negotiating things that aren't mentioned at all on the term sheet. They need to be in there. There's more to it than just the price. And then you, as you get into the actual deal, there is a pain point that happens using a non-expert lawyer and that's because they’re flailing around like I already talked about where a young lawyer over overemphasizes the need to protect the client on every issue, every cost, and is negotiating the boilerplate, miscellaneous terms at the end and things like that.

So, too, the same thing happens with a non-expert. They negotiate the wrong things. They also don't prep their client. As part of the diligence and part of the getting ready that one of my jobs is to issue spot. What is the buyer going to be worried about what they're going to see? Oh, you don't have third-party consent and you need them on the lease on this material contract on that.

Or, how are we going to get in front of this issue? We've got a contractor that was granted a warrant to buy stock two years ago. No longer works here. How are we going to clean that up? Was it terminated? Was it not? So, an expert like myself is going to nip things in the bud.

And I'm going to focus on negotiating the things that matter that makes a material difference in the exposure of the client, in the deal. And also, as important I'm not going to derail the deal by negotiating for the wrong things, by focusing on things that don't matter. The funny thing is, I've done hundreds of these deals and even though it's hundreds of different law firms and lawyers, all the agreements end up looking pretty familiar, pretty similar, they have the same sections, the same paragraphs.

I don't know if there was one master template, a writer in the sky a hundred years ago, but even the flow and the format, it was all very familiar and similar.  I've seen it all, a thousand times I, if I read it and it looks right, I recognize it.

And if somebody has done something weird and customized it in a non-standard way, I'll know that right away, just from looking at it. And so, what happens is the deal slows down and the transaction costs go up because lawyers then start arguing over things they shouldn't be arguing over. Which then pulls in the parties that start negotiating over something that they shouldn't waste their time negotiating.

And then you start getting some hard feelings on both sides, some irritation on both sides, all of which could have been avoided if you have experts on both sides of the deal. This can happen, by the way, both ways. If we're the buyer and we're buying a company and the targets have hired a non-expert lawyer you run into the same exact problems.

And so, my advice is always, I want expert counsel on both sides of the deal. Even though there may be some opportunities to take advantage of the inexperience of the other side, usually it's offset with the headache involved in dealing with someone that doesn't know what they're doing.

So, every deal is different and every deal size is different, but certainly, you want competent counsel on both sides, for sure.

Jeffrey Feldberg: [00:16:07] Addison some terrific words and insights. And for our listeners, I hope you're listening carefully. One of the things that we work with our community through the Deep Wealth Experience is what you had alluded to.

It's actually step eight of our 9-step roadmap. And that's where you're finding the skeletons in your closet ahead of time. Clearing them up, removing them before we actually start the process. That's all part of the preparation, but for our listeners, I hope you pick this up with what Addison was saying.

There are different types of advisors. Some advisors just want to get the deal done to put a checkmark next to it. Hey, the deal was done. Other advisors are, I want the best deal for you and not just any deal I want the best deal. And so Addison was highlighting some of the common mistakes that as business owners, we tend to make that he looks for right off the bat, just in case you missed it, to clear that out of the way and move things forward very smoothly.

So, Addison, talk to us in your experience of what you've seen where business owners put themselves at peril because they have the wrong advisors who just want to get the deal done at any cost, even though it may not be the best deal for the business owner.

Addison Adams: [00:17:17] Yeah, it's a good question. I'm going to say that business owners come in different levels of experience and education and knowledge. At the most basic level, the business owner is usually really good at their job, whatever their business is, they know how to run their business and they've run it well.

And they excel at that.  The next level of a business owner is the one that has gotten some education and training on how to be a good CEO on how to be a good manager and has basically developed skills to work on the business in addition to in the business. And so that can help grow the management team in a way this CEO is now better at delegating.

He or she is able to leave the business for a month and the business runs smoothly without their involvement. These are some examples. So, then we go to the next level of expertise of a CEO, which is understanding that if the plan is to sell the business you should educate yourself about selling the business.

An ounce of prevention is worth a pound of cure. So, if you are spending several years with the end in mind, preparing your business for eventual sale, identifying weak spots that a buyer's going to be concerned about, taking a course like yours, Jeffrey to really get a better, deeper understanding.

This is going to make your sell price higher. It's going to make. Your decision-making stronger. And one of the things that a CEO with that much knowledge is going to put a strong team around them, not just a lawyer, but an investment banker.

The right insurance advisor. It goes on and on, right? You obviously, you need to have a really solid financial statement. I typically recommend getting audited financials for sure. You need a high quality, at least a regional CPA firm that is going to be able to represent you in the financial due diligence to support you to support your financials.

And cutting corners can lead to disasters. I worked with one company that had hired a solo CPA to help with their financials. And this was a company that had a surprisingly complicated structure, a holding company, subsidiaries, and sister companies all owned by the same person and was claiming revenue of $16 million.

And so, we get into a transaction and we start looking under the hood and incomes the accounting team to do the financial due diligence and scrub the numbers and look at the books, and turns out that they were booking revenue from one company to another and booking it again as it went back and forth.

So, the same dollar was getting triple and quadruple counted as it moved around among the different entities.  And so of course that's not real revenue, right? You only get to count your dollars once. And ultimately the revenue ended up shrinking down to 4 million and that obviously changed the pricing of everything and the owner no longer wanted to sell.

The seller lost all credibility because they had misrepresented their revenues in such an important way. That lesson there, I think is an interesting one because, from the seller side, your credibility is everything. In that case. I don't need to make an assessment of whether the owner was committing fraud and lying about his financials or whether he was just incompetent and didn't know basic accounting rules.

And how do you describe what your revenues are? Either way, it's a losing scenario, right? You need to be able to tell the truth to the buyer. Meaning not to lie to them. If you start getting caught in a lie, the deal is off. So, its credibility is everything. Part of credibility is also just knowing the right answer.

And that means you need to have competence. You need the right team around you. You need to deliver financials that are materially substantially correct.

One thing I'll do if I get hired by a client, not on the eve of the sale, but far enough in advance is I will go through a legal diligence review, a financial diligence review. And if it's a tech company a technology, detailed review, and I'll say, this is what you can expect at the sale.

So, start thinking about, do you have everything, that you need to have in order? And that helps.  It really helps when it comes time to sell. If everything is neat and orderly and you've got signed agreements for everything, your financials are properly put together, you had competent advisors around it.

Then you’re going to get a higher price and you're going to close faster. It's just going to work out a lot better. You have less problems post-closing.

Jeffrey Feldberg: [00:22:13] Addison, it's interesting. And you referenced this a couple of times in that story that you were sharing, which is so crucial.

And for a lot of business owners, they don't pick up on it. And in fact, this is actually step number five of our 9-step roadmap. The currency in mergers and acquisitions, much like it is in life, in addition to business, it's not money. It's really trust. And if you lose the trust of the other side. So, in the case of this one story that you were sharing of quadruple counting the money coming in obviously you've blown the deal. Possibly not just that deal, but perhaps within the industry itself.

And so, trust is absolutely everything, but for our listeners, I don't know if you picked up on it, but Addison has the right mindset. He's thinking like a business owner, he's thinking like a seller of what do we need to do to make sure that the other side is going to have confidence in what they're receiving from us in the turnaround time and the professionalism of it.

And that's really what we highly recommended at Deep Wealth is that you have advisors who have the right mindset because they are an extension of you. Can you talk to us about some of the common mistakes that you've seen from business owners who are putting the wrong people at the deal table that shouldn't be there in the first place?

Addison Adams: [00:23:31] I am sifting through my memory for an appropriate war story here that will fit that question. And for the most part, actually, If you're sitting at the table as a deal person, the vast majority of the time people are professional they're value add, and they're good.

They're helpful at what they do. And there's not a ton of people that are involved in the transaction at the level where you're talking to the buyer and you're talking to the buyer’s council. It’s the management team and the investment banker.

And then to a much lesser extent, there'll be the CPA on the, delivering the quality of earnings report or answering questions.

I think that to the extent that when there has been bad advice involved in a deal my goal is always going to be to highlight that and discreetly exclude them from direct communication that's with anyone where they could cause a problem.

I would just describe that as a fixable problem, where I would try to swerve around it, isolate it. What I have seen is the slow train crash that's been building for the previous 12 months. And you say this problem got created slowly over time. And so how are we going to try to fix it in a matter of days or weeks now that we're just trying to get the deal done?

That kind of thing does happen all the time. That's pretty familiar, whether it's an employee benefit problem, an ERISA violation, or noncompliance on past securities issuances, and we've got a regulatory exposure. There's just stuff out there that needs to be dealt with.

Investment bankers come in all shapes and sizes and some are definitely way more effective than others.  There's a lot of great things about an investment banker. Let me mention a few. One is that if you give them leeway, they will conduct an auction and test the market.

And get some competitive bidding in order to maximize the price, which is really helpful to give you comfort, to know have you got as much as you can, are you in the right ballpark? Are you leaving money on the table? That can be really helpful. The other thing is that they've done it a thousand times and they're very much valuation oriented, right? Everything has a price tag that goes with it. And so, they're going to give really good advice back to you as an owner that says, here's where we can negotiate more. Here's where we should pull back some. They can also help run interference on problems. On legal issues, speed bumps that could potentially derail the deal.

A really good investment banker is going to help me help the company get in front of the problem, manage the expectations of the buyer. Even the timing of it, to say, okay, so there was this issue and here's the solution, that's a good way to do it.

The negotiation itself, it never ends until the deal closes and the money funds. And so, you may think that everything's done negotiating. When you sign your term sheet, you get your first draft of the sale agreement, but, diligence continues, negotiations end up continuing to, and so having that expert in your corner, helping you navigate that process is critical.

So, on the lower end of the spectrum, someone that's newer or lower might be focused on closing at all costs. And I think that's where you need the guard of someone like me to say, Hey, do you realize that your personal assets are exposed here in this amount?

That's the problem, of course, with the risk that you can run into if anybody's a commission-based advisor. Nobody with the right head on their shoulders wants to close a deal that then blows up with a lawsuit afterward. That's just a complete disaster. So, that's a big part of, I think what we're doing is minimizing the risk that there's that kind of fallout afterward that there's buyer's remorse or, claims that they didn't realize what they were buying.

They thought it was better than it is. That's one of the reasons to be so open about the facts and the truth and what you've got. It's better to just get it out on the table and obviously with hopefully a positive light spin on it, but still, have it all out there and, and as a seller that knows your business, I think that you're you want to have the win-win approach.

You want to imagine yourself as the buyer and you want this to work out for the buyer you do. You don't want this to be a total failure, so you want to help them. You want to give them advice. I'm going to tell them basically what you think they should be doing. And also, you want the puzzle pieces to line up.

You should say if it's a strategic buyer, is my business going to fold into theirs nicely? Is it going to integrate or is it going to complement as a subsidiary? Or is it going to be some kind of competitive conflict or is the culture going to clash? If you look at it from the buyer's point of view during the transaction and you flag the issues, then that can help the buyer get in front of these issues for their success.

And like I said, you want them to succeed because you want to keep all that money in your pocket that they just paid you. You want your employees to be happy, right? You want everything to work smoothly and stay out of court.

Jeffrey Feldberg: [00:28:54] It's interesting Addison. It's a lot to unpack there and you bring up really important points and a number of crucial takeaways.

One of the things that I hope came out and as you're listening to Addison talk, is that as good as Addison is, he's only as good as the advisory team that you have. And he was referencing earlier how an investment banker, which by the way, every single business owner should have, when they're doing some kind of liquidity event, that's all the advisors, you don't want to cut corners on that. Addison can do a terrific job on something, but if you don't have an investment banker or if you don't have the right investment banker, it may be for not. So, it's really this complex ecosystem where one liquidity event advisor depends on the other to get the deal done. And Addison, you said something interesting. we hear the horror stories about this. That oftentimes because advisors are in their own specific silos, they’re looking at their area, not understanding the big picture. And as a result, like you'd reference earlier, there's this momentum of let's just get this deal done.

Instead of asking, is this the right deal to get done, or is this the best deal? And so, you touched on that earlier, but what are some things that you could either help with from your side or insights as business owners in terms of what we can do to make sure that yes, this is the best deal and we're not just checking a box to get any deal done.

Addison Adams: [00:30:26] It's hard to generalize across all industries and all businesses, and business sizes. That's tough to do because if you're selling a software business versus a manufacturing business, there's going to be different concerns at play in terms of how that's going to work and how that's going to fit.

And also, who's the buyer? There are two buyers in the world, right? There's a financial buyer. That's just paying the money and then taking over the business. And then there's a strategic buyer, that has a business and is folding it in. If I'm the seller, part of me is, asking the question, why am I selling?

And that's also going to impact whether the deal should happen or not. If I'm in a deadline scenario where I need this business sold by the end of the year, for some reason, tax reasons or health reasons or I need the money. Then that's going to impact and influence what you'll put up with in terms of getting the deal done.

And also, what your opinion is on whether it should get done. If you have the luxury of time, then obviously you can be a lot more discerning about the deal terms and who the buyer is. So, long as any issues are disclosed and litigation is minimized and both sides are, well-represented and eyes open then typically the deal should go forward.

From the buyer's point of view, when you're buying a company, different companies at different major assets.

And so, by that, they might have a long customer list that makes them valuable. They might have a uniquely trained employment force that makes them valuable. They might have a library of patents that makes them valuable. Okay. They might have a reputation, 150 years, a well-known brand name that makes them valuable.

A lot of times it's a combination of all of the above. But an example of a deal that you might want to not do as a seller is if what makes your business valuable is about to evaporate or it could evaporate, then you'd either want to not do that deal, or you'd want to make sure you were protected against that eventuality. As an example, let's say you've got. Customer concentration and a few big customers. And let's say you got a feeling that they're not going to want to work for the buyer. They're not going to keep doing business with the buyer because the buyer is a competitor. Which means your revenues are going to be cut in half. Obviously, the buyer needs to be aware of that. But that's a recipe for a problem. If someone pays a multiple on something and then right after the closing, a bunch of customers quit or a dozen of your key employees all quit.

These are ways that deals go south. And I'm also making some assumptions about a cash at closed structure. Maybe a small escrow holds back. A lot of deals though end up with an earn-out component. That's can be significant in order to bridge the gap on price.

Whenever you have an earn-out component, then these questions, as well as the questions of who's in control and management decision-making become absolutely critical.

Jeffrey Feldberg: [00:33:51] Absolutely. When it comes to earn-outs, we are not advocates of an earn-out. And we recommend either have no earnout all if, at all possible or as small as possible for the reasons that you mentioned Addison, you just don't have that control once the company is taken over by the acquirer. And then it's anybody's guess as to what would happen. Addison, let me ask you this. There are typically two schools of thoughts, really for all advisors, but let's focus in on M&A lawyer. And so, one school of thought is you're better off finding an M&A lawyer who is a specialist that all they do are deals in a specific industry at a specific size day in, day out.

And there's another school of thought that says no, actually you really want someone who's more of a generalist. They've seen it all. Nothing's really going to surprise them. It doesn't matter that it might be a different industry. It might be a different deal size because they're a generalist they can really deal with anything that comes up. And I'm curious as to where you stand on that. And is there a right answer on finding an M&A lawyer who is a specialist or a generalist?

Addison Adams: [00:35:06] My answer to that is you're 99% of the way there with an M&A lawyer expert, whether they're a generalist or a specialist.

I guess I've never really thought about that question. And as I'm talking, I'm thinking about it and I would go down on the side of the generalist would be your best choice. Mainly out of fear that the specialist might have more limited experience and a slimmer library of background to draw upon.

I'm assuming that a generalist has more deals under their belt. Has seen more issues solved more problems. It's just going to be a little better at getting the deal done. I think that to address the question of specialization that can typically be handled by a specialist attorney in that field, advising the M&A attorney on unique legal issues, pertaining to whatever the business is.  A lot of times businesses will have in-house counsel that's a specialized, attorney in their space. If it's an insurance agency or an insurance company they'll have of insurance counsel advising them on regulatory compliance.

So, from the M&A point of view, you’re selling that insurance company, or you're selling that group of insurance agencies, the same issues are there, but the question that needs to be answered is what regulatory approval is required in order to transfer ownership and have the licenses go along with it.

That's a question that has an answer. You filed the right notice with the right agency and you get the approval and then the thing goes through and that's typically the case.

 Jeffrey Feldberg: [00:36:47] What I'm hearing is you can actually do a hybrid approach.

You have a generalist M&A lawyer, but you can bring in specialists on very specific subject matter areas or topics as they come up. And in that way, you have the best of both worlds.

Addison Adam: [00:37:02] That's right.

Jeffrey Feldberg: [00:37:03] So, on a similar note, Addison, you have an interesting background. You're definitely on the M&A side, but within M&A you're involved in finance, you're involved in ownership, you're involved in contracts.  As an example, on the finance side, you've seen all different kinds of structure offerings, and investor offerings.

And why when a business owner is looking for, in this case, an M&A lawyer go under the covers just below the M&A to find out what other areas are their specialties in, because I would imagine that in the finance area alone, depending on the deal, your background will actually be an asset because you have the experience and the insights. Can you talk to us a little bit about that?

Addison Adams: [00:37:47] Sure I would love to. I was a finance major in undergrad and I love numbers. I think that actually just as a side note to toot my own horn, a lot of lawyers are famous for being allergic to math and any kind of number crunching. And I'm very comfortable with spreadsheets and with rates of recurrent multiples, these kinds of things.

And I think that's helpful in terms of. Of my personal background. I think I mentioned, I started with a lot of preferred financing, venture capital financing for.com back in the late nineties, early 2000’s. And then I moved into a lot of public company financing work with pipe financings and reverse mergers and registered offerings.

Underwritten IPO's. Secondary trading on different exchanges and as part of private company finance, whether it's just a venture capital round, or whether it's from a hedge fund with a goal of taking the company public, it certainly opens your eyes to the complexity that can exist in terms of essentially protecting the downside for the investor with liquidation preference rights, with dividend rights, redemption rights.

As well as the upside with conversion rights in the common, registration rights warrant kickers, these kinds of things. It's all part of the same thing for the business owner, which is he or she is building the business and growing it to make a ton of money.

Maybe also ancillary purposes, like making the world a better place providing for his family and things like that. But the goal is growing this business organically and then if you're bringing in investors, you're really trying to turbocharge the growth with some growth capital. Several million dollars that helps you do some marketing, advertising, scaling up. That is its own negotiation, its own sort of understanding of what's important. And it's also many M&A transaction because the investor is kicking the tires, and especially if it's a material investment there's a lot of these sort of syndicated investments and crowdfunding things where each investor is putting a small number of dollars, in a lot of different pots.

But you have someone come in and write a check for a few million dollars. They're going to be really involved in the business. And so, I think that an attorney that is experienced in that has a broader base of knowledge to draw upon in terms of how do investors think, how do buyers think, how do business owners think. There are all kinds of businesses out there, right? There's a lot of them have one owner operator and that's it. And that's what you see a lot in manufacturing and distribution type companies, family businesses, that kind of thing.

And then in the software and tech industry, a more team-oriented approach. A founder team comes together. They raise money from angel investors, so now they have partners. Then they raise more money from venture capital. So, they've got really well-educated and smart partners. And the whole thing is getting bigger and more professional as it goes.

A deal as a financing deal or as a sale of the company deal, they both result in a bunch of money for the owner or the seller and they lead to greater things and both sides are usually pretty excited about what they're doing. That's why they're doing it.

It's wealth accretion here not just transferring money from one side to the other.

Jeffrey Feldberg: [00:41:22] Addison, for our listeners, I'll be the first to say that was an alphabet soup of technical terms, and I'm not going to be trying to pretend that I understood that all, but it goes back to what I said earlier when your team works the dream works. And so, you heard it there, live in prison, Addison rattling off all of these financing terms and financial terms. And this is coming from an M&A lawyer, but he's got the background and he understands it. So, how much better off are you going to be as a business owner with someone like an Addison who has that background?

That understands the nuances and complexities. He can pull all of that together. Now, Addison, a bit of a loaded question for you because again, I hear it on both sides and I hear a case being made for listen, Jeffrey, you want to find an M&A lawyer who's from a boutique firm. Because you're going to get the attention and that specialization that you're not going to get at a larger firm.

And they're just going to be more general and there's going to be fee differences from your perspective where you sit, what are your thoughts on a specialized M&A law firm versus a more general law firm where M&A happens to be one practice of many practices.

Addison Adams: [00:42:40] You're right. That is a loaded question. And the answer to the question is that it comes down to the person and sitting in the chair at the table, right? Who is the lawyer leading the transaction? And does that person have the experience, background, and skills? So, the answer is you can end up with a bad lawyer.

At a big firm or at a small firm. A lot of big-firm lawyers will go start a small firm because the economics make a little more sense for them. And this is basically a path that I followed. I was at a bigger firm, helped grow it over 15 years, and then started my own firm.

The smaller firms are going to give you really personal attention. The staffing is going to be a little tighter. You're definitely going to save a lot of money compared to a big firm. I was on a deal, an $18 million deal. And we had a big firm on the other side and their legal fee was half a million dollars.

And there was another attorney in the firm, also a giant firm. And they were, I think only $360,000. And so that’s giant legal fees especially for only an $18 million deal. Of course, my fees were a fraction of that.  That said, I will say that big firms do great work. You get quality, but you pay through the nose for it. So, bigger sized deals can justify the expense of the bigger legal fee and a bigger, more expensive, firm. If you're paying a lawyer $1,500 an hour the quality better be there, and it is, but that's a ton of money.

That's just, no matter how you slice it, that's a lot of money.  So, it needs to justify it. And then the result is that if you get into the several hundred million dollars to a billion-plus you can certainly justify higher expense fees of a big firm. So, my firm, we provide the same level of service.

We go toe to toe with the $1,500 an hour attorney. My rates were much higher when I was at my last firm but we just do it in a more affordable way.  And certainly, no less sophisticated. The interesting thing is that one of the selling points for a big firm is the different resources available.

Different expertise. And the fun thing in my firm is that I actually have all the time, same resources, just more distributed. So, I have a specialist M&A tax attorney that I use on all my deals have a specialized ERISA attorney for employment benefit plans. I have a specialized intellectual property, lawyer. Every expertise is covered when it needs to be covered such that you can be assured that your deal will have no gaps and expertise and legal advice. So, if I was a seller of a business and the sale price of that was a hundred million or less, I would absolutely seek out a small firm with the expertise and focus of closing M&A deals. And the reason is because I know that they're going to give me A+ attention. I'm going to get the attention of the senior, lawyer, not the junior that's learning on the job. And that is one of the downsides of a bigger firm. You do end up interfacing, with more junior lawyers. I've got almost 25 years of experience. And so, there's a difference there when you have that background versus, you're three years out of school.

That's my long-winded answer to your short question of which one's better.

Jeffrey Feldberg: [00:46:17] Addison you're spot on though. And for our listeners, I hope you picked up on this because what Addison said was absolutely correct. You can have the biggest, best brand name law firm for your M&A transaction.

And maybe that's the way to go. But you have to be careful of what I call a bait and switch. You speak to the lead M&A lawyer, terrific individual, lots of experience that gives you the confidence, but then you sign on board, and next thing you're working with all of the juniors who you probably never would have hired in the first place if you're going to be working just with them.

And so, Addison brings up some terrific points of, there are some differences. There are some advantages on either side. It needs to make sense for you, but Addison back of the envelope. When you look at the approximate costs of legals for a deal, is there some kind of benchmark for business owners to have a sense of, okay, it's going to be, up to this size of a deal it's going to be X percent is what? Typically, the cost should be. Is there something like that or any recommendations that you can give?

Addison Adams: [00:47:24] Yeah, it depends of course, on what the rate is of the law firm that you're hiring.  And so, in terms of costs, it can vary, but you'd be looking at 20 grand at the low end and a hundred grand at the high end for hiring from my firm. And I already gave you some examples of the two other firms at the $350 and the $500,000 range. So, the hourly rate makes a big difference on the total cost. The size of the deal makes a difference on the cost, which in some sense is potentially surprising because you still have to negotiate all the same things. If it's a $2 million deal or a $200 million deal, the sale agreement has to cover the same stuff. What are the indemnity rights? What's the purchase price? When's it being paid? What's the escrow hold back? But what makes it more expensive is maybe a little bit of mission creep just because everyone knows it's a big deal.

So, everyone just spends more time making sure everything's perfect. But also, bigger deals usually mean bigger companies, which means more issues. And so, if you're saying I want to do a disclosure schedule that lists all the material contracts a small company might only have 25 to list and a big company might have a thousand.

And so that's just going to take more time, reading all those and, making sure there's no anti-assignment clauses in each one as an example. Bigger deals just end up having more to go through more paperwork, more just ancillary documents. Instead of one or two key employees, there might be five or 10, so now you're getting key man insurance, you're getting new employment agreements with each one.

They might need equity grants and the buyer to incentivize them to stick around and pay attention. Things get multiplied. So, that can take the cost up. The other thing that I've seen that can drive a cost up, which is interesting is a delay. Every deal always starts with a short-expected timeframe to close, to say, Oh, we're going to close in 60 days or, 45 days or 90 days. And some do. But then some don't. The ones that don’t by virtue of things, getting renegotiated, and then the paperwork has to get revised and terms change.

And as that drags on, so too, does the overall costs of the deal.

Jeffrey Feldberg: [00:49:35] Words to the wise, watch the time, watch the overall process. Keep on top of everything is really business owners, what we should be doing anyways Addison, as we start to wrap things up and you've been absolutely fabulous with your insights and your suggestions and what as business owners we should be thinking about.

One of the questions that we ask every guest on the podcast, it's like a back to the future question. And so, it goes something like this. Imagine that is now back to the future, you have this DeLorean that can take you back to any point in your past. And you're going to be speaking to the younger, Addison, maybe it's Addison as a young boy or Addison as a young man, or who knows when.

What would be the two or three things that you'd be telling the younger Addison to either do more of, or less of to have a better life?

Addison Adams: [00:50:29] Oh start your own firm sooner Addison.

Yes. Yes. It's interesting. My last firm was me and three other sorts of primary founders, owners of the firm. And we grew the firm from, at its smallest. It was six lawyers. And at its biggest, it was 50 lawyers with three offices across the US. And it was one of the best times of my life growing that firm and having the best friends and relationships with my partners.

Super exciting. Actually, I would not give that up for anything. I wouldn't redo that, but from a professional point of view, and I think anybody that's listening to this that's a business owner they know this in spades that there are tremendous advantages to being the owner as opposed to the employee.

And there's even a difference between having, co-owners and partners and just being the controlling owner. And that's a freedom that's I don't know if everybody's built for it and ready for it, but those of us who are should do it as soon as the time is right.

And so that's what my DeLorean self would say. So, I will also say Jeffrey that I am grateful for this opportunity to talk with you. I appreciate the questions you asked. I loved your recap that you provided and how you tied it into the curriculum that you're offering to business owners.

And I can't say enough that. It is the right thing to do for a business owner to educate themselves about selling their company, about what to expect. These things are of tremendous value. I also agree that they should join a CEO peer group. They should get a business coach.

They should have as much feedback as possible to implement best practices to make better decisions. Life is a journey of constant self-improvement and you are never done. There's always more to learn, to more, to grow more, to understand. Yeah. I love that you've taken your success and turned it into a program, a lesson for others to learn from, to benefit from, and to implement.

Jeffrey Feldberg: [00:52:46] Addison, thank you. Those are very kind words and certainly preaching to the choir here in terms of my mission of really tilting the playing field to the advantage for business owners. Because usually it's the other way around and through conversations like this, where you're really sharing stories from the trenches, where we can all learn of what to look for and what to look out for. Oftentimes knowing what not to do is more valuable than knowing what to do because you're right. When it comes to a liquidity event, at least from most business owners, this is it. This is their one kick at the can. There, isn't going to be something else afterwards. And your future depends on it. You better make it count and you better ensure that you minimize at all costs, mistakes, because mistakes can be costly.

And through conversations like this, you're helping to pay that forward. Addison, I am eternally grateful for that. As we wrap things up here Addison, if somebody would like to find you online, where's the best place to do that.

Addison Adams: [00:53:47] You can find me at my website, which is AdamsCorporateLaw.com. You can also find me on LinkedIn under my name, Addison Adams, and I am accepting new clients.

I would be happy to have a free initial phone call with any of your listeners. Talk about their needs, their questions. And we can set up a meeting and if it makes sense to work together then I would look forward to that and welcome it.

Jeffrey Feldberg: [00:54:15] You heard that straight from the master M&A lawyer himself Addison, and that's something I would definitely take him up on.

 Addison, this has been truly a pleasure. Thank you so much for your time, your wisdom, and your insights today.

Addison Adams: [00:54:28] Thank you, Jeffrey. It was a real pleasure. Have a great day.